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CS101 Introduction of computing

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MGT101 - Financial Accounting

Glossary

accounting

cycle :

The procedures for analyzing, recording, classifying, summarizing, and reporting

the transactions of a business.

account

payable :

An amount owed to a supplier for good or services purchased on credit; payment

is due within a short time period, usually 30 days or less.

acid-test

ratio (or

quick ratio) :

A measure of a firm's ability to meet current liabilities; more restrictive than the

current ratio, it is computed by dividing net quick assets (all current assets, except

inventories and prepaid expenses) by current liabilities.

bad debt : An uncollectible account receivable.

Deferred

Income

Taxes :

An account used to record the difference between income tax expense on the

income statement and income taxes payable for the year to federal and state

governments.

dividend

payment

date :

The date on which a corporation pays dividends to its shareholders.

double-entry

accounting :

A system of recording transactions in a way that maintains the equality of the

accounting equation.

drawings

account :

The account used to reflect periodic withdrawals of earnings by the owner

(proprietor) or owners (partners) of a proprietorship or partnership.

effective-

interest

amortization

:

A method of systematically writing off a bond premium or discount that takes into

consideration the time value of money and results in an equal rate of amortization

for each period.

Financial The private organization responsible for establishing the standards for financial



Accounting

Standards

Board

(FASB) :

accounting and reporting in the United States.

FOB (free-

on-board)

destination :

A business term meaning that the seller of merchandise bears the shipping costs

and maintains ownership until the merchandise is delivered to the buyer.

going

concern :

The idea that an accounting entity will have a continuing existence for the

foreseeable future.

gross margin

:

The excess of net sales revenue over the cost of goods sold.

gross margin

method :

A procedure for estimating the amount of ending inventory; the historical

relationship of cost of goods sold to sales revenue is used in computing ending

inventory.

gross sales : Total recorded sales before deducting any sales discounts or sales returns and

allowances.

gross tax

liability :

The amount of tax computed by multiplying the tax base (taxable income) by the

appropriate tax rates.

held-to-

maturity

securities :

Debt securities purchased by an investor with the intent of holding the securities

until they mature.

historical

cost :

The dollar amount originally exchanged in an arm's-length transaction; an amount

assumed to reflect the fair market value of an item at the transaction date.

historical

exchange

rate :

The exchange rate that existed on the date of a transaction.

horizontal

analysis of

A technique for analyzing the percentage change in individual income statement

or balance sheet items from one year to the next.



financial

statements :

imprest petty

cash fund :

A petty cash fund in which all expenditures are documented by vouchers or

vendors' receipts or invoices, the total of the vouchers and cash in the fund should

equal the established balance.

income

statement

(statement of

earnings) :

The financial statement that summarizes the revenues generated and the expenses

incurred by an entity during a period of time.

accrued

expenses :

Expenses that arise through adjusting entries when accounting for unrecorded

expenses.

adjusted

gross

income :

An individual taxpayer's total income minus deductions (adjustments) for

individual retirement plan contributions and alimony paid.

adjustments

to gross

income :

Amounts deducted from the gross income of an individual taxpayer in arriving at

adjusted gross income; includes contributions to individual retirement plans and

alimony paid.

adverse

opinion :

Audit report indicating the auditor believes the overall financial statements are so

materially misstated or misleading that the statements do not fairly represent the

financial position or results of the operations and cash flows.

aging

accounts

receivable :

The process of categorizing each account receivable by the number of days it has

been outstanding.

Allowance

for

Uncollectible

Accounts :

A contra account, deducted from Accounts Receivable, that shows the estimated

losses from uncollectible accounts.

annuity : A series of equal amounts to be received or paid at the end of equal time intervals.



assets : Economic resources that are owned or controlled by an entity.

balance

sheet

(statement of

financial

position) :

The financial statement that shows the assets, liabilities, and owners' equity of an

entity at a particular date.

bank

reconciliation

:

The process of systematically comparing the cash balance as reported by the bank

with the cash balance on the company's books and explaining any differences.

board of

directors :

Individuals elected by the stockholders to govern a corporation.

bond : A contract between a borrower and a lender in which the borrower promises to

pay a specified rate of interest for each period the bond is outstanding and repay

the principal at the maturity date.

bond

discount :

The difference between the face value and the sales price when bonds are sold

below their face value.

business

expenses :

Expenses that have been paid or incurred in the course of business and that are

ordinary, necessary, and reasonable in amount

calendar

year :

An entity's reporting year, covering 12 months and ending on December 31.

capital gain : The excess of the selling price over the cost basis when assets, such as securities

and other personal and investment assets, are sold.

capital stock

:

The portion of a corporation's owners' equity contributed by investors (owners) in

exchange for shares of stock.

cash : Coins, currency, money orders, checks, and funds on deposit with financial

institutions; the most liquid of assets.



cash-basis

accounting :

A system of accounting in which transactions are recorded and revenues and

expenses are recognized only when cash is received or paid.

cash

equivalents :

Short-term, highly liquid investments that can be converted easily into cash.

cash

outflows :

The initial cost and other expected outlays associated with an investment.

cash receipts

journal :

A special journal in which all cash received, from sales, interest, rent, or other

sources, is recorded.

classified

balance

sheet :

A balance sheet in which assets and liabilities are subdivided into current and

noncurrent categories.

code of

professional

ethics :

Rules set by the AICPA's Committee on Professional Ethics, which govern the

conduct of CPAs.

comparative

financial

statements :

Financial statements in which data for two or more years are shown together.

consignment

:

An arrangement whereby merchandise owned by one party (the consignor) is sold

by another party (the consignee), usually on a commission basis.

consignor : The owner of merchandise to be sold by someone else, known as the consignee.

contributed

capital :

The portion of owners' equity contributed by investors (the owners) in exchange

for shares of stock.

control

account :

A summary account in the General Ledger that is supported by detailed individual

accounts in a subsidiary ledger.

convertible

bonds :

Bonds that can be traded for, or converted to, other securities after a specified

period of time.



cost method

of

accounting

for

investments

in stock :

Method used to account for an investment in the stock of another company when

less than 20 percent of the outstanding voting stock is owned.

cost of

goods sold :

The expense incurred to purchase or manufacture the merchandise sold during a

period.

credit card

draft :

The part of the multiple-page credit form that is sent by the retailer to the credit

card company for reimbursement of the stated amount.

cumulative-

dividend

preference :

The rights of preferred stockholders to receive current dividends plus all dividends

in arrears before common stockholders receive any dividends. current assets: Cash

and other assets that may reasonably be expected to beconverted to cash within a

year or during the normal operating cycle.

current-

dividend

preference :

The right of preferred shareholders to receive current dividends before common

shareholders receive dividends.

date of

record :

The date selected by a corporation's board of directors on which the shareholders

of record are identified as those who will receive dividends.

debt

financing :

Acquiring funds by borrowing money from creditors in the form of long-term

notes, mortgages, leases, or bonds.

declaration

date :

The date on which a corporation's board of directors formally decides to pay a

dividend to shareholders.

depreciation

:

The process of cost allocation that assigns the original cost of plant and equipment

to the periods benefited.

discounting

a note

receivable :

The process of the payee's selling notes to financial institution for less than the

maturity value.



diversified

companies :

Companies operating in more than one line of business.

dividends in

arrears :

Missed dividends for past years that preferred stockholders have a right to receive

under the cumulative-dividend preference if and when dividends are declared.

EDP

(electronic

data

processing) :

A term referring to the use of computers in recording, classifying, manipulating,

and summarizing data.

entity : An organizational unit (a person, partnership, or corporation) for which

accounting records are kept and about which accounting reports are prepared.

equity

financing :

Acquiring funds in the form of investments by owners (proprietor, partner, or

stockholder).

exchange

gain or loss :

The gain or loss incurred when the exchange rates are different on the purchase

and payment dates or on the sale and receipt of payment dates.

financing

activities :

Transactions and events whereby resources are obtained from, or repaid to,

owners (equity financing) and creditors (debt financing).

floor : The minimum market amount at which inventory can be carried on the books;

equal to net realizable value minus a normal profit.

Foreign

Corrupt

Practices

Act (FCPA)

:

Legislation requiring any company that has publicly-traded stock to maintain

records that accurately and fairly represent the company's transactions;

additionally, requires any publicly-traded company to have an adequate system of

internal accounting controls.

GAAS

(generally

accepted

auditing

standards) :

Auditing standards developed by the AICPA.



generally

accepted

auditing

standards

(GAAS) :

Auditing standards developed by the AICPA.

general-

purpose

financial

statements :

The financial reports intended for use by a variety of external groups; they include

the balance sheet, the income statement, and the statement of cash flows.

goodwill : An intangible asset that exists when a business is valued at more than the fair

market value of its net assets, usually due to strategic location, reputation, good

customer relations, or similar factors; equal to the excess of the purchase price

over the fair market value of the net assets purchased.

gross

income :

The taxable portion of a taxpayer's gross receipts.

account : An accounting record in which the results of transactions are accumulated; shows

increases, decreases, and a balance.

accounting : A service activity designed to accumulate, measure, and communicate financial

information about economic entities for decision-making purposes.

accounting

model :

The basic accounting assumptions, concepts, principles, and procedures that

determine the manner of recording, measuring, and reporting an entity's

transactions.

accounting

system :

The set of manual and computerized procedures and controls that provide for

identifying relevant transactions or events; preparing accurate source documents,

entering data into the accounting records accurately, processing

transactionsaccurately, updating master files properly, and generating accurate

documents and reports.

account

receivable

turnover :

A measure used to determine a company's average collection period for

receivables; computed by dividing net sales (or net credit sales) by average

accounts receivable.



accrual-basis

accounting :

A system of accounting in which revenues and expenses are recorded as they are

earned and incurred, not necessarily when cash is received or paid.

adjusting

entries :

Entries required at the end of each accounting period to recognize, on an accrual

basis, revenues and expenses for the period and to report proper amounts for asset,

liability, and owners' equity accounts.

amortization

:

The process of cost allocation that assigns the original cost of an intangible asset

to the periods benefited.

annual

report :

A document that summarizes the results of operations and financial status of a

company for the past year and outlines plans for the future.

arm's-length

transactions

:

Business dealings between independent and rational parties who are looking out

for their own interests.

articulation : The interrelationships among the financial statements.

asset

turnover

ratio :

An overall measure of how effectively assets are used during a period; computed

by dividing net sales by average total assets.

audit report : A report issued by an independent CPA that expresses an opinion about whether

the financial statements present fairly a company's financial position, operating

results, and cash flows in accordance with generally accepted accounting

principles.

authorized

stock :

The amount and type of stock that may be issued by a company, as specified in its

articles of incorporation.

available-

for-sale

securities :

Debt and equity securities not classified as trading, held-to-maturity, or equity

method securities

bond

maturity

The date at which a bond principal or face amount becomes payable.



date :

bond

premium :

The difference between the face value and the sales price when bonds are sold

above their face value.

book value : The net amount shown in the accounts for an asset, liability, or owners' equity

item.

book value

per share :

A measure of net worth; computed by dividing stockholders' equity for each class

of stock by the number of shares outstanding for that class.

business : An organization operated with the objective of making a profit from the sale of

goods or services.

callable

bonds :

Bonds for which the issuer reserves the right to pay the obligation before its

maturity date.

capital

account :

An account in which a proprietor's or partner's interest in a firm is recorded; it is

increased by owner investments and net income and decreased by withdrawals

and net losses.

cash

disbursements

journal :

A special journal in which all cash paid out for supplies, merchandise, salaries,

and other items is recorded.

cash over

and short :

An account used to record overages and shortages in petty cash.

ceiling : The maximum market amount at which inventory can be carried on the books;

equal to net realizable value.

chart of

accounts :

A systematic listing of all accounts used by a company.

charter

(articles of

incorporation)

A document issued by a state that gives legal status to a corporation and details

its specific rights, including the authority to issue a certain maximum number of

shares of stock.



:

closed

transaction :

A transaction that is completed within the accounting period; both the purchase

and payment or sale and receipt of payment occur within the same accounting

period.

compound

journal entry

:

A journal entry that involves more than one debit or more than one credit or both.

conduit

principle :

The idea that all income earned by an entity must be passed through to the owners

and reported on their individual tax returns; applicable to proprietorships,

partnerships, and S corporations.

consignee : A vendor who sells merchandise owned by another party, known as the consignor,

usually on a commission basis.

consolidated

financial

statements :

Statements that report the combined operating results, financial position, and cash

flows of two or more legally separate but affiliated companies as if they were one

economic entity.

contra

account :

An account that is offset or deducted from another account.

corporation : A legal entity chartered by a state; ownership is represented by transferable shares

of stock.

coupon

bonds :

Unregistered bonds for which owners receive periodic interest payments by

clipping a coupon from the bond and sending it to the issuer as evidence of

ownership.

current (or

working

capital) ratio

:

A measure of the liquidity of a business; equal to current assets divided by current

liabilities.

debentures

(unsecured

Bonds for which no collateral has been pledged.



bonds) :

debt

securities :

Financial instruments issued by a company that carry with them a promise of

interest payments and the repayment of principal.

deduction : Business expenses or losses that are subtracted from gross income in computing

taxable income.

direct

method :

A method of reporting net cash flow from operations that shows the major classes

of cash receipts and payments for a period of time.

direct write-

off method :

The recording of actual losses from uncollectible accounts as expenses during the

period in which accounts receivable are determined to be uncollectible.

disclaimer of

opinion :

A disclaimer indicating the auditor was unable to satisfy himself or herself that the

overall financial statements were fairly present in accordance with GAAP.

discount : The amount charged by a financial institution when a note receivable is

discounted; calculated as maturity value times discount rate times discount period.

discount

period :

The time between the date a note is sold to a financial institution and its maturity

date.

discount rate

:

The interest rate charged by a financial institution for buying a note receivable.

dividends : Distributions to owners (stockholders) of a corporation.

drawings : Distribution to the owner(s) of a proprietorship or partnership; similar to

dividends for a corporation.

effective tax

rate :

A tax rate that reflects the percentage of the actual tax liability to the accounting

income generated by the company, that is, net tax liability/financial (book) income

before taxes.

effective

(yield or

The actual interest rate earned or paid on a bond investment.



market) rate

of interest :

electronic

data

processing

(EDP) :

A term referring to the use of computers in recording, classifying, manipulating,

and summarizing data.

EPS

(earnings per

share) :

The amount of net income (earnings) related to each share of stock; computed by

dividing net income by the number of shares of common stock outstanding during

the period.

equity

method or

accounting

for

investments

in sto :

Method used to account for an investments in the stock of another company when

significant influence can be imposed (presumed to exist when 20 to 50 percent of

the outstanding voting stock is owned).

equity

securities :

Shares of ownership in a corporation that can change significantly in value and

that provide for a return to investors in the form of dividends.

account

receivable :

A current asset representing money due for services performed or merchandise

sold on credit.

accrual basis

:

Gross income is recognized when earned.

accrued

liabilities :

Liabilities that arise through adjusting entries when accounting for unrecorded

liabilities.

accumulated

depreciation

:

The total depreciation recorded on an asset since its acquisition; a contra account

deducted from the original cost of an asset on the balance sheet.

allowance

method :

The recording of estimated losses due to uncollectible accounts as expenses

during the period in which the sales occurred.



audit : The result of an independent accountant's review of the statements and footnotes

to ensure compliance with generally accepted accounting principles and to render

an opinion on the fairness of the financial statements.

audit

committee :

Members of a client's board of directors who are responsible for dealing with the

external and internal auditors.

basket

purchase :

The purchase of two or more assets acquired together at a single price.

bond

carrying

value :

The face value of bonds minus the unamortized discount or plus the unamortized

premium.

bond

indenture :

A contract between a bond issuer and a bond purchaser that specifies the terms of

a bond.

business

documents :

Records of transactions used as the basis for recording accounting entries;

includes invoices, check stubs, receipts, and similar business papers.

capital : The total amount of money or other resources owned or used to acquire future

income or benefits.

capital

expenditure :

An expenditure that is recorded as an asset because it is expected to benefit more

than the current period.

capital lease

:

A leasing transaction that is recorded as a purchase by the lessee.

cash basis : Gross income is recognized when cash is received.

cash

dividend :

A cash distribution of earnings to shareholders.

cash inflows

:

Any current or expected revenues or savings directly associated with an

investment.



certified

public

accountant

(CPA) :

A special designation given to an accountant who has passed a national uniform

examination and has met other certifying requirements; CPA certificates are

issued and monitored by state boards of accountancy or similar agencies.

closing

entries :

Entries that reduce all nominal, or temporary, accounts to a zero balance at the

end of each accounting period, transferring their preclosing balances to a

permanent balance sheet account.

common

stock :

The most frequently issued class of stock; usually it provides a voting right but is

secondary to preferred stock in dividend and liquidation rights.

compounding

period :

The period of time for which interest is computed.

contingent

liability :

A potential obligation, dependent upon the occurrence of future events.

control

activities :

Policies and procedures used by management to meet its objectives; generally

divided into adequate segregation of duties, proper authorization of transactions

and activities, adequate documents and records, physical control over assets and

records, and independent checks on performance.

control

environment

:

The actions, policies, and procedures that reflect the overall attitudes of top

management, the directors, and the owners about control and its importance to the

entity.

convertible

preferred

stock :

Preferred stock that can be converted to common stock at a specified conversion

rate.

cost

principle :

The idea that transactions are recorded at their historical costs or exchange prices

at the transaction date.

credit : An entry on the right side of the account.

debit : An entry on the left side of an account.



debt-equity

management

ratio :

A measurement of the relative utilization of debt and equity; computed by

dividing average total assets by average stockholders' equity.

declining-

balance

depreciation

method :

An accelerated depreciation method in which an asset's book value is multiplied

by a constant depreciation rate (such as double the straight-line percentage, in the

case of double-declining-balance.)

depletion : The process of cost allocation that assigns the original cost of a natural resource to

the periods benefited.

dividends

account :

The account used to reflect periodic distributions of earnings to the owners

(stockholders) of a corporation.

earnings per

share (EPS) :

The amount of net income (earnings) related to each share of stock; computed by

dividing net income by the number of shares of common stock outstanding during

the period.

exchange

rate :

The value of one currency in terms of another.

exclusions : Gross receipts that are not subject to tax and are not included in gross income,

such as interest on state and local government bonds.

expenses : Costs incurred in the normal course of business to generate revenues.

external

auditors :

Independent CPAs who are retained by organizations to perform audits of

financial statements.

external

audits :

Audits conducted by CPAs who are independent of the client company.

extraordinary

items :

Nonoperating gains and losses that are unusual in nature, infrequent in

occurrence, and material in amount.

factor : To sell accounts receivable at a discount before they are due.



fair market

value :

The current value of an asset, e.g., the amount at which an asset could be sold or

purchased in an arm's-length transaction.

FASB

(Financial

Accounting

Standards

Board) :

The private organization responsible for establishing the standards for financial

accounting and reporting in the United States.

FCPA

(Foreign

Corrupt

Practices

Act) :

Legislation requiring any company that has publicly-traded stock to maintain

records that accurately and fairly represent the company's transactions;

additionally, requires any publicly-traded company to have an adequate system of

internal accounting controls.

FICA (social

security)

taxes :

Federal Insurance Contributions Act taxes imposed on employee and employer;

used mainly to provide retirement benefits.

FIFO (first-

in, first-out)

:

An inventory cost flow whereby the first goods purchased are assumed to be the

first goods sold so that the ending inventory consists of the most recently

purchased goods.

financial

accounting :

The area of accounting concerned with reporting financial information to

interested external parties.

financial

statements :

Reports such as the balance sheet, income statement, and statement of cash flows,

which summarize the financial status and results of operations of a business entity.

fiscal year : An entity's reporting year, covering a 12 month accounting period.

FOB (free-

on-board)

shipping

point :

A business term meaning that the buyer of merchandise bears the shipping costs

and acquires ownership at the point of shipment.

franchise : An entity that has been licensed to sell the product of a manufacturer or to offer a



particular service in a given area.

freight-in : An account used with the periodic inventory method for recording the costs of

transporting into a firm all purchased merchandise intended for sale; added to

purchases in calculating cost of goods sold.

functional

currency :

The currency in which a subsidiary conducts most of its business; generally, but

not always, the currency of the country where it does most of its spending and

earning.

GAAP

(generally

accepted

accounting

principles) :

Authoritative guidelines that define accounting practice at a particular time.

generally

accepted

accounting

principles

(GAAP) :

Authoritative guidelines that define accounting practice at a particular time.

income taxes

payable :

The amount expected to be paid to the federal and state governments based on the

income before taxes reported on t he income statement.

independent

checks :

Procedures for continual internal verification of other controls. indirect method: A

method of reporting net cash flow from operations that involves converting

accrual-basis net income to a cash basis.

inflation : An increase in the general price level of goods and services; alternatively, a

decrease in the purchasing power of the dollar.

intangible

assets :

Long-lived assets without physical substance that are used in business, such as

licenses, patents, franchises, and goodwill.

intercompany

transaction :

A transaction between a parent company and a subsidiary company.



interest : The payment (cost) for the use of money.

interest rate : The cost of using money, expressed as an annual percentage.

internal

auditors :

An independent group of experts in controls, accounting, and operations, who

monitor operating results and financial records, evaluate internal controls, assist

with increasing the efficiency and effectiveness of operations, and detectfraud.

internal

control

structure :

Safeguards in the form of policies and procedures established to provide

management with reasonable assurance that the objectives of an entity will be

achieved.

inventory : Goods held for resale.

inventory

cutoff :

The determination of which items should be included in the year-end inventory

balance.

inventory

turnover

ratio :

A measure of the efficiency with which inventory is managed; computed by

dividing cost of goods sold by average inventory for a period.

investing

activities :

Transactions and events that involve the purchase and sale of securities (excluding

cash equivalents), property, plant, equipment, and other assets not generally held

for resale, and the making and collecting of loans.

issued stock

:

Authorized stock originally issued to stockholders; it may or may not still be

outstanding.

itemized

deduction :

Amounts paid by an individual taxpayer for personal and quasi-business expenses

that can be deducted in computing taxable income, such as medical expenses,

property and income taxes, mortgage and investment interest, charitable

contributions, moving expenses, casualty and theft losses, and certain

miscellaneous expenses

JIT (just-in-

time)

inventory :

An inventory system that allows for the elimination of inventory stockpiles and

inefficiency and waste; raw materials arrive "just in time" for production and

finished goods "just in time" for sale.



journal : An accounting record in which transactions are first entered; provides a

chronological record of all business activities.

journal entry

:

A recording of a transaction where debits equal credits; usually includes a date

and an explanation of the transaction.

junk bonds : Bonds issued by companies in weak financial condition with large amounts of

debt already outstanding; these bonds yield high rates of return because of the

high risk.

just-in-time

(JIT)

inventory :

An inventory system that allows for the elimination of inventory stockpiles and

inefficiency and waste; raw materials arrive "just in time" for production and

finished goods "just in time" for sale

lapping : A procedure used to conceal the theft of cash by crediting the payment from one

customer to another customer's account on a delayed basis.

LCM (lower

cost or

market) :

A basis for valuing certain assets at the lower of original cost or current market

value.

lease : A contract that specifies the terms under which the owner of an asset (the lessor)

agrees to transfer the right to use the asset to another party (the lessee).

ledger : A book of accounts in which data from transactions recorded in journals are

posted and thereby classified and summarized.

legal capital

:

The amount of contributed capital not available for dividends; usually equal to the

par or stated value of outstanding capital stock.

lessee : The party that is granted the right to use property under the terms of a lease.

lessor : The owner of property that is rented (leased) to another party.

liabilities : Obligations measurable in monetary terms that represent amounts owed to

creditors, governments, employees, and other parties.



license : The right to perform certain activities, generally granted by a governmental

agency.

LIFO (last-

in, first-out)

:

An inventory cost flow whereby the last goods purchased are assumed to be the

first goods sold so that the ending inventory consists of the first goods purchased.

limited

liability :

The legal protection given stockholders whereby they are responsible for the debts

and obligations of a corporation only to the extent of their capital contributions.

liquidation : The process of dissolving a business by selling the assets, paying the debts, and

distributing the remaining equity to the owners.

liquidity : A company's ability to meet current obligations with cash or other assets that can

be quickly converted to cash.

long-term

investment :

An expenditure to acquire a non-operating asset that is expected to increase in

value or generate income for longer than 1 year.

long-term

liabilities :

Debts or toher obligations that will not be paid within one year.

losses : Costs that provide no benefit to an organization.

loss per

share :

The amount of net loss related to each share of stock; computed by dividing net

loss by a number of shares of common stock outstanding during the period.

lower cost or

market

(LCM) :

A basis for valuing certain assets at the lower of original cost or current market

value.

MACRS

(modified

accelerated

cost

recovery

system) :

IRS regulations that allocate the cost of an asset according to predefined recovery

periods and percentages.



maker : A person (entity) who signs a note to borrow money and who assumes

responsibility to pay the note at maturity.

management

accounting :

The area of accounting concerned with providing internal financial reports to

assist management in making decisions.

Market

Adjustment-

Trading

Securities

account :

An account used to track the difference between the historical cost and the market

value of a company's portfolio of trading securities.

matching

principle :

The concept that all costs and expenses incurred in generating revenues must be

recognized in the same reporting period as the related revenues.

maturity

date :

The date on which a note or other obligation becomes due.

maturity

value :

The amount of an obligation to be collected or paid at maturity; equal to principal

plus any interest.

merger : The acquisition of one company by another company whereby the companies

combine as one legal entity, with the acquired company going out of existence.

minority

interest :

The interest owned in a subsidiary by stockholders other than those of the parent

company; occurs when the acquiring company has less than a 100 percent

ownership interest.

modified

accelerated

cost

recovery

system

(MACRS) :

IRS regulations that allocate the cost of an asset according to predefined recovery

periods and percentages.

monetary

measurement

:

The idea that money, as the common medium of exchange, is the accounting unit

of measurement, and that only economic activities measurable in monetary terms

are included in the accounting model.



mortgage

amortization

schedule :

A schedule that shows the breakdown between interest and principal for each

payment over the life of a mortgage.

mortgage

payable :

A written promise to pay a stated amount of money at one or more specified

future dates; a mortgage is secured by the pledging of certain assets, usually real

estate, as collateral.

moving

average :

A perpetual inventory cost flow alternative whereby the cost of goods sold and the

cost of ending inventory are determined by using a weighted-average cost of all

merchandise on hand after each purchase.

mutual

agency :

The right of all partners in a partnership to act as agents for the normal business

operations of the partnership, with the authority to bind it to a business

agreements.

natural

resources :

Assets that are physically consumed or waste away, such as oil, minerals, gravel,

and timber.

net assets

(owners'

equity) :

The ownership interest in the assets of an entity; equal total assets minus total

liabilities.

net income

(or net loss)

:

A measure of the overall performance of a business entity; equal to revenues

minus expenses for the period.

net proceeds

:

The difference between maturity value and discount when a note receivable is

discounted.

net

realizable

value :

The selling price of an item less reasonable selling costs.

net

realizable

value of

The net amount that would be received if all receivables considered collectible

were collected; equal to total accounts receivable less the allowance for

uncollectible accounts; also called the book value of accounts receivable.



accounts

receivable :

net sales : Gross sales less sales discounts and sales returns and allowances.

net tax

liability :

The amount of tax computed by subtracting tax credits from the gross tax liability.

nominal

accounts :

Accounts that are closed to a zero balance at the end of each accounting period;

temporary accounts generally appearing on the income statement.

noncash

items :

Items included in the determination of net income on an accrual basis that do not

affect cash; examples are depreciation and amortization.

noncash

transactions

:

Investing and financing activities that do not affect cash; if significant, they are

disclosed below the statement of cash flows or in the notes to the financial

statements.

nonoperating

assets :

Investment and other assets not used in a business but held to earn a return

separate from operations.

nonprofit

organization

:

An entity without a profit objective, oriented toward providing services efficiently

and effectively.

no-par stock

:

Stock that does not have a par value printed on the face of the stock certificate.

note payable

:

A debt owed to a creditor, evidenced by an unconditional written promise to pay a

certain sum of money on or before a specified future date.

note

receivable :

A claim against a debtor, evidenced by an unconditional written promise to pay a

certain sum of money on or before a specified future date.

notes to

financial

statements :

Explanatory information considered an integral part of the financial statements.



NSF (not

sufficient

funds) check

:

A check that is not honored by a bank because of insufficient cash in the

customer's account.

number of

days' of

inventory on

hand :

An alternative measure of how well inventory is being managed; computed by

dividing 365 days by the inventory turnover ratio.

number of

days' sales in

receivables :

A measure of the average number of days it takes to collect a credit sale;

computed by dividing 365 days by the accounts receivable turnover.

number of

days' sales

invested in

working

capital :

An alternative measure of the amount of working capital used in generating the

sales of a period; computed by dividing 365 days by the working capital turnover.

open

transaction :

A transaction that is not completed at the end of the accounting period; a purchase

that has not yet been paid for or a sale where payment is yet to be collected when

the accounting period ends.

operating

activities :

Transactions and events that enter into the determination of net income.

operating

assets :

Long-term, or noncurrent, assets acquired for use in the business rather than for

resale; includes property, plant, and equipment; intangible assets; and natural

resources.

operating

lease :

A simple rental agreement.

operating

leverage :

The extent to which fixed costs are part of a company's cost structure; the higher

the proportion of fixed costs, the faster income increases or decreases with sales

volumes.



operating

performance

ratio :

An overall measure of the efficiency of operations during a period; computed by

dividing net income by net sales.

organizational

structure :

Lines of authority and responsibility.

other

revenues and

expenses :

Items incurred or earned from activities that are outside, or peripheral to, the

normal operations of a firm.

outstanding

stock :

Issued stock that is still being held by investors.

owners'

equity (net

assets) :

The ownership interest in the assets of an entity; equal total assets minus total

liabilities.

parent

company :

A company that owns or maintains control over other companies, known as

subsidiaries, which are themselves separate legal entities; control generally refers

to more than 50 percent ownership of the stock of another company.

partnership : An association of two or more individuals or organizations to carry on economic

activity.

partnership

agreement :

A legal agreement between partners; it usually specifies, among other things, the

capital contributions to be made by each partner, the ratios in which partnership

earnings and losses will be distributed, the management responsibilities of the

partners, and the partners' rights to transfer or sell their individual interests.

par-value

stock :

Stock that has a nominal value assigned to it in the corporation's charter and

printed on the face of each share of stock.

patent : An exclusive right granted for 17 years by the federal government to manufacture

and sell an invention.

payee : The person (entity) to whom payment on a note is to be made.



P/E (price

earnings)

ratio :

A measure of growth potential, earnings stability, and management capabilities;

computed by dividing market price per share by earnings per share.

pension plan

:

A contract between a company and it employees whereby the company agrees to

pay benefits to employees after their retirement.

periodic

inventory

method :

A system of accounting for inventory in which cost of goods sold is determined

and inventory is adjusted at the end of the accounting period, not when

merchandise is purchased or sold.

perpetual

inventory

method :

A system of accounting for inventory in which detailed records of the number of

units and the cost of each purchase and sales transactions are prepared throughout

the accounting period.

petty cash

fund :

A small amount of cash kept on hand for making miscellaneous payments.

physical

safeguards :

Physical precautions used to protect assets and records, such as locks on doors,

fireproof vaults, password verification, security gauds.

post-closing

trial balance

:

A listing of all real account balances after the closing process has been completed;

provides a means of testing whether total debits equal total credits for all real

accounts prior to beginning a new accounting cycle.

posting : The process of transferring amounts from the journal to the ledger.

preemptive

right :

The right of current stockholders to purchase additional shares of stock in order to

maintain their same percentage of ownership if new shares are issued.

preferred

stock :

A class of stock that usually provides dividend and liquidation preferences over

common stock.

premium on

stock :

The excess of the issuance (market) price of stock over its par or stated value.

prepaid Payments made in advance for items normally charged to expense.



expenses :

present

value of $1 :

The value today of $1 to be received or paid at some future date given a specified

interest rate.

present

value of an

annuity :

The value today of a series of equally spaced, equal-amount payments to be made

or received in the future given a specified interest rate.

price-

earnings

(P/E) ratio :

A measure of growth potential, earnings stability, and management capabilities;

computed by dividing market price per share by earnings per share.

primary

financial

statements :

The balance sheet, income statement, and statement of cash flows, used by

external groups to assess a company's economic standing.

principal

(face value

or maturity

value) :

The amount that will be paid on a bond at a maturity date.

principal on

a note :

The face amount of a note; the amount (excluding interest) that the maker agrees

to pay the payee.

prior-period

adjustments

:

Adjustments made directly to Retained Earnings in order to correct errors in the

financial statements of prior periods.

profitability

:

A company's ability to generate revenues in excess of the costs incurred in

producing those revenues.

proper

authorization

:

Policy regarding either a general class of transactions such as inventory or a

specific transaction to achieve control objectives.

property

dividend :

The distribution to shareholders of assets other than cash.



property,

plant, and

equipment :

Tangible, long-lived assets acquired for use in business operations; includes land,

buildings, machinery, equipment, and furniture.

property,

plant, and

equipment

turnover :

A measure of how well property, plant, and equipment are being utilized in

generating a period's sales; computed by dividing net sales by average property,

plant and equipment.

proprietorship

:

A business owned by one person.

pro rata : A term describing an allocation that is based on a proportionate distribution of the

total.

public

companies :

Entities whose stock is publicly traded.

purchase

discount :

A reduction in the purchase price, allowed if payment is made within a specified

period.

purchase

method :

A method used to prepare consolidated financial statements when one company

has acquired a controlling interest in another company with similar activities by

exchanging cash or other assets for more than 50 percent of the acquired

company's outstanding voting stock.

Purchase

Returns and

Allowances :

A contra-purchase account used for recording the return of, or allowances for,

previously purchased merchandise.

purchases

account :

An account in which all inventory purchases are recorded; used with the periodic

inventory method.

purchases

journal :

A special journal in which credit purchases are recorded.

qualified Opinion issues when the work of the auditor has been limited in scope or the



opinion : entity has failed to follow GAAP

real accounts

:

Accounts that are not closed to a zero balance at the end of each accounting

period; permanent accounts appearing on the balance sheet.

realized

gains and

losses :

Gains and losses resulting from the sale of securities in an arm's length

transaction.

receivables : Claims for money, goods, or services.

recourse : The right to seek payment on a discounted note from the payee if the maker

defaults.

recovery

period :

The time period designated by Congress for depreciating business assets.

redemption

value :

The price, stated in the contract, to be paid by a company to repurchase preferred

stock.

registered

bonds :

Bonds for which the names and addresses of the bondholders are kept on file by

the issuing company.

relative fair

market value

method :

A way of allocating a lump-sum or "basket" purchase price to the individual assets

acquired based on their respective market values.

residual

income :

The amount of net income an investment center is able to earn above a specified

minimum rate of return on assets.

retail

inventory

method :

A procedure for estimating the dollar amount of ending inventory; the ending

inventory at retail prices is converted to a cost basis by using a ratio of the cost

and the retail prices of goods available for sale.

retained

earnings :

The portion of a corporation's owners' equity that has been earned from profitable

operations and not distributed to stockholders.



return on

investment

(ROI) :

A measure of operating performance and efficiency in utilizing assets computed in

its simplest form by dividing net income by average total assets.

return on

sales

revenue :

A measure of operating performance; computed by dividing net income by total

sales revenue.

return on

stockholders'

equity :

A measure of overall performance from a stockholder's viewpoint; includes

management of operations, uses of assets, and management of debt and equity,

and is computed by dividing net income by average stockholder's equity.

return on

total assets :

An overall measure of the return to both stockholders and creditors; includes

operating performance and asset turnover.

revenue

recognition

principle :

The idea that revenues should be recorded when (1) the earnings process has been

substantially completed and (2) an exchange has taken place.

revenues : Increases in a company's resources from the sale of goods or services.

ROI (return

on

investment) :

A measure of operating performance and efficiency in utilizing assets computed in

its simplest form by dividing net income by average total assets.

S

corporation :

A domestic corporation that is recognized as a regular corporation under state law

but is granted special status for federal income tax purposes.

sales

discount :

A reduction in the selling price that is allowed if payment is received within a

specified period.

Sales

Journal :

A special journal in which credit sales are recorded.

Sales

Returns and

Allowances :

A contra-revenue account in which the return of, or allowance for, reduction in the

price of merchandise previously sold is recorded.



sales tax

payable :

Money collected from customers for sales taxes, that must be remitted to local

governments and other taxing authorities.

salvage, or

residual,

value :

Estimated value or actual price of an asset at the conclusion of its useful life, net

of disposal costs.

SEC

(Securities

and

Exchange

Commission)

:

The government body responsible for regulating the financial reporting practices

of most publicly owned corporations in connection with the buying and selling of

stocks and bonds.

secured

bonds :

Bonds for which assets have been pledged in order to guarantee repayment.

Securities

and

Exchange

Commission

(SEC) :

The government body responsible for regulating the financial reporting practices

of most publicly owned corporations in connection with the buying and selling of

stocks and bonds.

segregation

of duties :

Strategy to provide an internal check on performance through separation of

custody of assets from accounting personnel, separation of authorization of

transactions from custody of related assets, separation of operational

responsibilities from record keeping responsibilities.

shareholders

(stockholders)

:

Individuals or organizations that own a portion (shares of stock) of a corporation.

significant

influences :

Influence presumed if a company owns between 20% and 50% of another

company.

social

security

(FICA) taxes

:

Federal Insurance Contributions Act taxes imposed on employee and employer;

used mainly to provide retirement benefits.



solvency : A company's long-run ability to meet all financial obligations.

special

journal :

A book of original entry for recording similar transactions that occur frequently.

special order

:

An order that may be priced below the normal price in order to utilize excess

capacity and thereby contribute to company profits.

specific

identification

:

A method of valuing inventory and determining cost of goods sold whereby the

actual costs of specific inventory items are assigned to them.

standard

unqualified

audit report :

Audit report indicating that all auditing conditions have been met, no significant

misstatements have been discovered and remain uncorrected, and the auditors feel

the financial statements are fairly stated in accordance with generally accepted

accounting principles.

stated rate of

interest :

The rate of interest printed on the bond.

stated value : A nominal value assigned to no-par stock by the board of directors of a

corporation.

statement of

cash flows :

The financial statement that shows an entity's cash inflows (receipts) and outflows

(payments) during a period of time.

statement of

earnings

(income

statement) :

The financial statement that summarizes the revenues generated and the expenses

incurred by an entity during a period of time.

statement of

partners'

capital :

A partnership report showing the changes in the capital balances; similar to a

statement of retained earnings for a corporation.

statement of

retained

A report that shows the changes in the Retained Earnings account during a period

of time.



earnings :

statement of

stockholders'

equity :

A financial statement that reports all changes in stockholders' equity.

stock

certificate :

A document issued by a corporation to stockholders evidencing ownership in the

corporation.

stock

dividend :

A pro rata distribution of additional shares of stock to shareholders.

stockholders

(shareholders)

:

Individuals or organizations that own a portion (shares of stock) of a corporation.

stock split : The replacement of outstanding shares of stock with a greater number of new

shares that have a proportionately lower par or stated value.

straight-line

amortization

:

A method of systematically writing off a bond discount or premium in equal

amounts each period until maturity.

straight-line

depreciation

method :

The depreciation method in which the cost of an asset is allocated equally over the

periods of an asset's estimated useful life.

subsidiary

company :

A company owned or controlled by another company, known as the parent

company.

subsidiary

ledger :

A grouping of individual accounts that in total equal the balance of a control

account in the General Ledger.

sum-of-the-

years'-digits

(SYD)

depreciation

method :

The accelerated depreciation method in which a constant balance (cost minus

salvage value) is multiplied by a declining depreciation rate.



supplies : Materials used in a business that do not generally become part of the sales product

and were not purchased to be resold to customers.

SYD (sum-

of-the-

years'-digits)

depreciation

method :

The accelerated depreciation method in which a constant balance (cost minus

salvage value) is multiplied by a declining depreciation rate.

tangible

personal

business

property :

Depreciable operating assets of a business, other than real property, including

machinery, furniture and fixtures, automobiles and trucks, and equipment.

term bonds : Bonds that mature in one lump sum at a specified future date.

time period

(or

periodicity)

concept :

The idea that the life of a business is divided into distinct and relatively short time

periods so that accounting information can be timely.

times

interest

earned ratio :

Ratio that indicates the company's margin above the fixed interest charged to be

paid to creditors; calculated by dividing income before interest and income taxes

by interest expense.

trading

securities :

Debt and equity securities purchased with the intent of selling them should the

need for cash arise or to realize short-term gains.

transactions

:

Exchange of goods or services between entities (whether individuals, businesses,

or other organizations), as well as other events having an economic impact on a

business.

transportation

costs :

Costs of transferring merchandise into or out of a firm.

treasury

stock :

Issued stock that has subsequently been reacquired by the corporation.



trial balance

:

A listing of all account balances; provides a means of testing whether total debits

equal total credits for all accounts.

Uncollectible

Accounts

Expense :

An account that represents the portion of the current period's receivables that are

estimated to become uncollectible.

unearned

revenues :

Amounts received before they have been earned.

units-or-

production

depreciation

method :

The depreciation method in which the cost of an asset is allocated to each period

on the basis of the productive output or use of the asset during the period.

unlimited

liability :

The lack of a ceiling on the amount of liability a proprietor or partner must

assume; meaning that if business assets are not sufficient to settle creditor claims,

the personal assets of the proprietor or partners may be used to settle the claims.

unrealized

gains and

losses :

Gains and losses resulting from changes in the value of securities that are still

being held.

unrecorded

expenses :

Expenses incurred during a period that have not been recorded by the end of that

period.

unrecorded

revenues :

Revenues earned during a period that have not been recorded by the end of that

period.

useful life : The term used to describe the life over which an asset is expected to be useful to

the company; cost is assigned to the periods benefited from using the asset.

vertical

analysis of

financial

statements :

A technique for analyzing the relationships between items on an income statement

or balance sheet by expressing all items as percentages.



weighted-

average :

A periodic inventory cost flow alternative whereby the cost of goods sold and the

cost of ending inventory are determined by using a weighted-average cost of all

merchandise available for sale during the period.

work sheet : A columnar schedule used to summarize accounting data.

working

capital :

Current assets minus current liabilities.

working

capital

turnover :

A measure of the amount of working capital used in generating the sales of a

period; computed by dividing net sales by average working capital.

zero-interest

bonds :

Bonds issued with no promise of interest payments; only a lump sum payment

will be made.

Documents

CS101 Introduction of computing MGT101 - Financial Accountingapi.ning.com/files/Q7mnt3YAl1j3PnqrEwE3-RjD8tqlz1104HdgKgVAU0W... · CS101 Introduction of computing ... MGT101 - Financial